Recent reports, including the IPCC Climate Change report and the Department of Agriculture Food Vision 2030 strategy, highlight that sustainability is core to the food and agribusiness sector. According to our research, ESG factors are on the senior leadership agenda of 37% of SMEs in the sector. This will increase as the emphasis on all facets of ESG develop in importance. 9 out of 10 businesses interviewed are taking environmental action so it’s clear that a higher level of ESG activity is happening but is not being interpreted within an ESG framework.
From our own consultancy engagements, daily mentions in the media, influence from the investment community as well as a hyper-focus from large players in the food and agribusiness sector means it’s time to engage with what ESG means for SMEs.
In the report we have considered the question - does ESG matter to an SME food or agribusiness? The answer is an overwhelming yes:
Your customer will judge you on your ESG credentials.
Your position in the supply chain can benefit or be disadvantaged by your ESG profile.
Your banking relationship will be impacted by your ESG commitments.
Investors will assess your ESG behaviours as part of their decision-making process.
ESG requires taking a rounded view of your business to decide how it serves both its internal and external stakeholders. The pace of change will keep accelerating across all three metrics. For food companies, your retail partners will have an ESG agenda which you will need to meet. This is driven by consumer expectation. For agri companies, the sector is going to be judged intensely on our food production sustainability credentials and activity.
Some benefits of ESG for food and agribusiness SMEs:
Improved financial performance, both revenue growth and cost reduction, by taking ESG related actions, for example, reducing waste, investing in renewable energy, improving brand image with consumers or enhancing diversity for improved decision-making.
Increased understanding of risks inherent in your business model over the long term.
New supply chain opportunities as larger companies actively seek more sustainable suppliers.
Improved employer branding, helping to attract diverse talent and retain existing talent.
Great communication opportunities with all stakeholders – team, suppliers, customers and the wider community.
ESG and Greenwashing
Greenwashing, the act of making misleading claims about your environmental actions, has long been an issue. The Financial Times, recently commented that, ESG has long been “blighted by hype and woolliness”. From an SME perspective, we suggest that the focus is on tangible, impactful actions as opposed to rhetoric and 100-page glossy reports.
Are ESG factors on the senior leadership agenda?
ESG factors are high on the senior leadership agenda for 39% of SMEs. ESG is higher on the leadership agenda for medium sized businesses (61%) in comparison to small businesses (38%). Family businesses are less likely to have ESG on their agenda (35%) than non-family businesses (58%).
How important are ESG considerations when making investment decisions?
ESG factors feature alongside financial factors when making investment decisions. Medium sized businesses are most likely to include ESG factors when making investment decisions (54%). 41% of non-family run businesses take ESG factors into account in comparison to 27% of family-run businesses.
Environmental actions
Food businesses and agribusinesses continue investing in initiatives associated with climate change, with the majority managing waste and purchasing sustainable packaging. 87% of businesses are taking climate change action. This is seen across all types of businesses (small, medium, family owned, non-family owned).
Optimism Increases
The ifac Food & AgriBusiness Report is a sentiment report for the SME sector. This year it is encouraging to see that optimism levels have bounced back strongly with 77% of companies optimistic about the coming 12 months. However, trends to monitor include rising costs, recruitment challenges, negative impacts from Brexit, a lack of succession planning and lower than ideal R&D investment.
Some of these challenges can be partially tackled by accessing the range of supports that are available from Enterprise Ireland, your Local Enterprise Office and LEADER. Included in the report is a comprehensive supports guide and for Enterprise Ireland clients, we advise that the Digitalisation Voucher should be accessed immediately.
Our keynote interview with Arama Kukutai, who is at the forefront of venture investing in agtech globally since he co-founded Finistere Ventures in 2006, highlights the level of investment going into agtech and foodtech. This is a sector where the opportunity to make a significant impact is real. Arama makes some interesting observations about Ireland, alternative protein, and building an agtech business.